August 24, 2012

12 Best & Worst Broker-Dealers: Q2 Earnings

Earnings fell as much as 58%, but also jumped over 600% within the broker-dealer industry—AdvisorOne spotlights the six best and six worst

Find out AdvisorOne’s winner and losers for Q2. Find out AdvisorOne’s winner and losers for Q2.

The second quarter was rough for investors, and for many financial institutions, including broker-dealers and their parent companies. Overall earnings in the banking sector, for instance, declined 9%, according to Reuters.

Still, Bank of America (BAC) staged a big turnaround in its financial results, which kept the sector’s performance way ahead of where it could have been had another quarterly loss been reported by the banking giant.

Many broker-dealers, though, reported earnings declines in the March-to-June period. Hence, the list of the six “best” companies in Q2 with broker-dealer operations includes one with negative shifts in net earnings.

Here are 12 companies, most of which were ranked on AdvisorOne’s list of Best & Worst Advisor Partner Firms for Q1, selected as the six best and six worst performers in Q2, based largely on how they out- or underperformed their broker-dealer rivals.

The lobby of JPMorgan's headquarters in New York. (Photo: AP)6th Best
JPMORGAN CHASE
(JPM)

Despite posting lower profits of $4.96 billion, down some 9% from a year ago (when net income was $5.43 billion), due largely to the chief investment office’s trading losses of $4.4 billion in the quarter, JPMorgan came in at sixth best out of the 12 in AdvisorOne’s list.

Still, JPM’s $1.21 earnings per share versus last year’s $1.27 cheered investors and analysts, who had expected per-share earnings of only $0.70.

J.P. Morgan Asset Management saw profits decrease to $391 million, down 10.9% from $439 million a year ago but up from $386 million in the prior quarter. Revenue from private banking was $1.3 billion, up 4% from a year ago.

Customer at a Wells Fargo ATM. (Photo: AP)

5th Best
WELLS FARGO
(WFC)

Wells Fargo’s Q2 profits grew 7%, to $4.62 billion from $3.95 billion a year ago. Earnings stood at $0.82 per share, a penny higher than analysts’ expectations.

In Wells’ business segment covering wealth, brokerage and retirement, profits rose to $343 million, up 1.8% from $337 million a year ago and up from $296 million in the prior quarter.

The wealth, brokerage and retirement unit includes 15,170 financial advisors as of June 30, an increase over the 15,134 financial advisors reported as of March 31.

Raymond James Stadium, home of the Tampa Bay Buccaneers. (Photo: AP)4th Best
RAYMOND JAMES FINANCIAL
(RJF)

For the quarter ending June 30, Raymond James had net income of $76.4 million, or 55 cents a share, up 63% from $46.8 million, or 37 cents per share, for the year-ago period.

The third-quarter fiscal year results included a $21 million pretax charge for expenses related to its purchase of Morgan Keegan. Without the charge, net income would have been $89.2 million, or 64 cents per share.

Net revenues of $1.09 billion were $214 million higher than the preceding quarter and “slightly better than the anticipated quarterly revenue increment associated with the MK acquisition,” the company said in a press release. This represents a sales jump of 25% over the earlier quarter and 28% over last year; analysts had expected revenues of $975.28 million.

The number of U.S.-based financial advisors stands at 5,487—up from 4,532 in the quarter ending March 31, before the Morgan Keegan deal wrapped up. Including reps in Canada and the U.K., Raymond James now has 6,567 advisors.

Investors Capital CEO Tim Murphy on the company website.3rd Best
INVESTORS CAPITAL
(ICH)

Investors Capital posted net income of $261,700 for the quarter versus a loss of $1.26 million a year ago. You can’t calculate a proper percentage increase from a negative number, and the dollar amount of the turnaround was somewhat small, so we have ranked Investors Cap No. 3.

Specific expense reduction initiatives implemented in the previous quarter led to reduced operating costs. Total revenue decreased 3.0% to $20.80 million compared with revenue of $21.44 million for the year-ago period, as commission revenue fell 4.9% to $16.09 million. Advisory fees, which comprise 19.8% of total revenue, remained fairly consistent with the prior period, declining 1.7%.

Total expenses fell $1.91 million or 8.6%, declining in every expense-related category, resulting in operating income of $0.45 million compared with an operating loss of $0.82 million for the prior period.

BofA CEO Brian Moynihan. (Photo: AP)2nd Best (sort of)
BANK OF AMERICA
(BAC)

(Bank of America could have topped the list, which will be explained shortly.)

BofA reported profits of $2.5 billion for second-quarter 2012, or 19 cents a share, beating analysts’ estimates of 14 cents, on revenues that jumped 66%, to $21.97 billion. A year ago, the bank showed a net loss of $8.8 billion, or 90 cents a share, largely due to mortgage-related losses. BofA’s results for the second quarter reflect higher mortgage banking income, according to BofA’s second-quarter earnings release.

These Q2 results were a massive $11.3 billion turnaround from last year’s quarter and probably merit being the best of the bunch, but, again, since you can’t calculate a proper percentage increase from a negative number, AdvisorOne decided to give the nod to the little guy for the Best of the 12.

Stifel CEO Ronald Kruszewski speaking about regulation reform sponsored by the St. Louis Fed.Best
STIFEL FINANCIAL
(SF)

Compared to BofA’s gargantuan dollar shift, Stifel Financial reported net income of “only” $26.1 million, or $0.42 per diluted share, on net revenues of $374.4 million, versus net income of $3.4 million, or $0.05 per diluted share, on net revenues of $358.9 million for the second quarter of 2011.

This represents a whopping 664% jump in earnings for the company, which has more than 2,000 financial advisors.

“In the quarter, asset management, investment banking advisory and Stifel Bank performed well, while commissions stabilized, and principal transactions and equity capital raising results were lower,” said Stifel President & CEO Ronald J. Kruszewski, in a press release.

The Global Wealth Management segment of Stifel Financial generated pre-tax operating income of $61.4 million, compared with $55.4 million in the second quarter of 2011 and $69.2 million in the first quarter of 2012. Net revenues for the quarter were $240.0 million, compared with $225.6 million in the second quarter of 2011, and $248.3 million in the first quarter of 2012.

Citigroup CEO Vikram Pandit. (Photo: AP)6th Worst
CITIGROUP
(C)

Citigroup reported net income for the second quarter 2012 of $2.9 billion, or $0.95 per diluted share, on revenues of $18.6 billion. This represents a 12% decline in earnings.

Excluding certain charges and adjustments, Citigroup net income was $3.1 billion, 1% lower than the second quarter of 2011. Operating expenses of $12.1 billion were 6% lower than the prior year period. Citigroup's cost of credit in the second quarter of 2012 was 17% below the prior-year period, reflecting a $1.6 billion improvement in net credit losses which was partially offset by a $1.0 billion reduction in net loan loss reserve releases.

Citi CEO Vikram Pandit said in a press release: "Our core businesses performed well in a difficult environment and are generating solid returns. We had strong growth in both loans and deposits, showed resilience in our markets-facing businesses, and saw record revenues in Transaction Services.

Goldman CEO Lloyd Blankfein (right) walking past the NYSE. (Photo: AP)5th Worst
GOLDMAN SACHS
(GS)

Goldmans’ second-quarter profit fell 12% to $927 million, as it and other Wall Street banks grappled with weak market conditions and the continuing European fiscal crisis, both of which have made investment banking and trading less profitable.

The firm’s profit amounted to $1.78 a share and beat the average analyst estimate of $1.16 a share, according to Thomson Reuters.

Goldman's quarterly revenue fell 30% to $6 billion. It set aside $2.2 billion for pay, 2% less than the year before.

Fear about the European debt crisis made the stock and bond markets volatile late last year, and clients of all the major banks shied away from mergers and acquisitions and public offerings of stock.

Goldman took in 43% less in the most-recent quarter than it did in the same quarter a year earlier from advising companies on mergers and acquisitions and underwriting fees for stock and bond sales.

LPL CEO Mark Casady at company's 2012 national conference.4th Worst
LPL FINANCIAL (LPLA)

In a repeat from last quarter, LPL Financial reported that quarterly profits were down although revenues were up. An added bright spot was the Boston- and San Diego-based independent broker-dealer’s addition of 223 net new advisors.

Profits for second-quarter 2012 dropped 13%, largely on investor uncertainty and low yields, the company said, with LPL reporting net income of $39.5 million, or earnings of $0.35 per share, $6 million lower than income of $45.5 million, or EPS of $0.40, a year ago. LPL earned $0.49 per share before charges and adjustments, but analysts had expected earnings of $0.56.

A 1.5% revenue rise to $908 million versus $894 million a year ago led to LPL’s first-ever quarterly cash dividend, of $0.12 per share.

Ameriprise CEO Jim Cracchiolo at the NYSE.3rd Worst
AMERIPRISE FINANCIAL
(AMP)

Ameriprise Financial (AMP) reported second-quarter 2012 net income from continuing operations of $224 million, or $0.99 per diluted share, compared with $319 million, or $1.27 per diluted share, a year ago—a decline of about 30%.

Results in the quarter included a charge of $57 million, or $0.26 per share, for unfavorable items, including a $40 million, or 18-cent-per-share, impact from a tax-related issue.

Operating net revenues were $2.5 billion, a 3% decline from a year ago, primarily due to lower net investment income from continued low interest rates and volatile equity markets, the company says. These market-driven impacts, though, were partially offset by growth in fee-based revenues driven by Ameriprise advisor client net inflows.

The number of Ameprise financial advisors is 9,803 vs. 9,744 in the previous quarter and 9,663 a year ago. About 7,500 of its advisors are franchisee reps and 2,300 are employees.

Morgan Stanley CEO James Gorman. (Photo: AP)2nd Worst
MORGAN STANLEY
(MS)

Morgan Stanley said its second-quarter profits decreased 53% to $563 million compared with profits of $1.19 billion a year ago.

Earnings per share came to $0.28 for income from continuing operations versus last year’s loss of $0.36 a share. Morgan Stanley's loss included a negative adjustment of about $1.7 billion, or $1.02 per diluted share, related to the conversion of preferred stock held by Mitsubishi UFJ Financial Group.

Morgan Stanley in its Q2 release also reported net revenues of $7 billion for the quarter compared with $9.2 billion a year ago. Analysts polled by Thomson Reuters had expected earnings per share of $0.43 on revenue of $7.7 billion.

Also, the number of Morgan Stanley Smith Barney (MSSB) advisors in the Global Wealth Management Unit dropped 2% from last quarter and 6% from last year to 16,934.

UBS CEO Sergio Ermotti. (Photo: AP)Worst
UBS (UBS)

UBS reported that its net income fell to 425 million Swiss Francs, or 0.11 Swiss francs per share, in the second quarter from 1.02 billion Swiss francs, or 0.26 Swiss francs per share a year ago—a 58% drop.

The wirehouse firm’s investment bank had a pretax loss of 130 million Swiss francs (or $133 million) in the second quarter due to “challenging market conditions,” as well as a loss of 349 million Swiss francs (about $358 million) related to the Facebook (FB) initial public offering.

Its Wealth Management-Americas unit, though, had a pretax profit of $211 million in the quarter ended June 30—a 28% jump over last year’s results of $165 million and a 1% gain from the earlier period, when pretax income was $209 million.

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